Business Intelligence--Used Intelligently

"Business intelligence" is the unfortunate (because misleading) term of art for profitability analysis using sophisticated software.   The phrase "business intelligence" is too readily confused with "competitive intelligence," which is an external, market-focused analysis of your firm's competitive set, what they are doing, their capabilities and new initiatives, and how they are perceived in the eyes of clients and prospects. 

"BI," by contrast, is an internal, financial-reporting-focused analysis of your firm's economic performance.  Importantly, a robust BI tool can analyze profitability by office, by practice group, by client, by matter, and by individual attorney.

The leading vendor, at least in law-firm-land, is arguably Redwood Analytics.  While it will never be the purpose of this post or any other—indeed, , and is contrary to the policy of "Adam Smith, Esq." writ large—to endorse any particular product or service, I felt obliged to give those seeking more background some form of starting point for their own research if they wish to delve in to how "BI" software actually works.  The rest of this post assumes you have at least a layman's familiarity with its capabilities.

The lead story in the current Law Firm, Inc., "Analyze This," is unfortunately a superficial and essentially unhelpful overview of the topic which does a disservice to BI by emphasizing its pitfalls if used mechanistically without so much as an allusion to its power and subtlety if used with nuance and sensitivity. 

The primary example in the article is that of a "senior partner," clearly afflicted with tunnel vision, who has proudly analyzed the profitability of his firm's trade association practice group and found it unimpressive:  While a steady and consistent driver of billable hours, there was zero premium work and little or no ability to work the magic of leverage.  Given the intrinsic nature of trade association practice, this should be a surprise to precisely no one.  The senior partner's conclusion?  The head of that practice group was grossly overcompensated.

Overlooked in the "senior partner"'s analysis was that this group annually generated one or two "seven figure" antitrust litigations that were billed at full rate.  This leads to the "duh" observation that "overly rigid" profitability analysis leads to "faulty conclusions."  Indeed:  And if the football chains were 9 yards long or 11 they would lead to faulty first-down analysis; this is not, as they say, "rocket science."

But BI, properly engaged, is rocket science.

What's the #1 top-of-mind metric for all law firms?  Love it or hate it?  Profits per partner.

What is BI all about?  Analyzing profitability.  If you agree with (a) and (b) above, can you seriously afford to ignore it?

The LFI article has, for all its disappointing skating-over-the-surface, one solid point:  BI can be kryptonite, and using the results of BI intelligence without discernment or studied reflection on how it will be received is inviting caustic and self-destructive backlash in the ranks of your own partnership.  The issue that's interesting, then, is not whether a mechanistic and rigid approach is the proper one—since when was that the ideal approach to anything?—but on a more granular basis, how does one use the intrinsic power of BI to help your firm stand out from the crowd? 

Finally, I must take violent exception to this:

One final point: Firms should consider restricting access to profitability analyses. Lawyers are trained advocates but often have limited financial acumen, and may misuse analyses. In addition, lawyers end up keeping score. This can lead to internal dissension...

And another thing: As a friend of mine likes to say, "every confidante has a confidante." So one trusted insider leaks to someone else, who leaks to someone else, and before you know it everything is essentially common knowledge within the partnership but with the nasty additional dimension that management now stands accused of trying to hide the ball, as well.

BI stands at the crossroads of many issues "Adam Smith, Esq." is all about:  How to professionalize the management of sophisticated law firms.  And believing that that conflicts with legal professionalism is, as my new good friend Tony Williams says, "Arrant Nonsense!  Arrant Nonsense!"